And what currency are they likely to trade in? While chances are that the world's major supply chains will still go to the US, chances are that they won't be trading in US Dollars. Are we prepared for that?

A recent article in the Wall Street Journal Marketwatch claims that the Age of America nears the end, as China's economy is poised to overtake the US by 2016, according to a fresh report by the International Monetary Fund.

For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China. According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.According to the IMF forecast, whomever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.Most people aren’t prepared for this. They aren’t even aware it’s that close.

The rise of China, and the relative decline of America, is the biggest story of our time. I for one wasn't aware of it being that close. In a post on food supply chain vulnerability I imagined it to be in 15 years or so, not just 5. Well, as it turns out, it's a matter of how you count and compare economies. The IMF in its analysis looks beyond exchange rates to the true, real terms picture of the economies using “purchasing power parities.” That compares what people earn and spend in real terms in their domestic economies:

Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising.

We are now witnessing the end of the Age of America, the article says, and I am compelled to agree. Most of us have lived in a world dominated by the U.S. for so long that there is no longer anyone alive who remembers anything else, but it should be remembered that America overtook Great Britain as the world’s leading economic power in the 1890s. The Age of China, however, will feel very different, because both countries enjoy very similar rules of constitutional government, respect for civil liberties and the rights of property. China has none of those. How will that impact trade relations? I'm just asking...

What the rise of China means for defense, and international affairs, has barely been touched on, and I'm not sure many stratgegists have even thought about it, but some are already a bit concerned:

Victor Cha, senior adviser on Asian affairs at Washington’s Center for Strategic and International Studies, told me China’s neighbors in Asia are already waking up to the dangers. “The region is overwhelmingly looking to the U.S. in a way that it hasn’t done in the past,” he said. “They see the U.S. as a counterweight to China. They also see American hegemony over the last half-century as fairly benign. In China they see the rise of an economic power that is not benevolent, that can be predatory. They don’t see it as a benign hegemony.”

And that is just the start of the worries.

The U.S. Treasury market continues to operate on the assumption that it will always remain the global benchmark of money. Business schools still teach students, for example, that the interest rate on the 10-year Treasury bond is the “risk-free rate” on money. And so it has been for more than a century. But that’s all based on the Age of America. No wonder so many have been buying gold. If the U.S. dollar ceases to be the world’s sole reserve currency, what will be?

What do you think? Should we fear China's rise to global economic powerhouse?